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S&P once again insists: NO "Death Spiral" if ACA isn't sabotaged but definite Spiral if it is.

Sun, 04/09/2017 - 10:38pm

Last fall, when the insurance carriers were jacking up their rates on the individual market by an (unsubsidized) national weighted average of around 25%, aside from the understandable grumbling about such a dramatic all-at-once increase, the big question was whether that would be enough to stabilize the market going forward, or whether this was just the beginning of an inevitable Death Spiral, etc etc.

An analysis out Thursday says that health insurers are expected in 2016 "to start reversing" financial losses on their Obamacare business after "hitting bottom" in 2015.

And 2017 "will likely see continued improvement" for those insurers selling individual health plans, "with more insurers getting close to breakeven or better," according to the report by Standard and Poor's Global Ratings.

The report also says big price increases for Obamacare plans in 2017 were likely a "one-time pricing correction."

And S&P said that while it expects insurers to ask for premium hikes for 2018, it also believes that "the average level of increase requested will be well below the 2017 hike" of 25 percent for a key type of Obamacare plans.

Again, this is all speculative, but the bottom line is that the CBO is stating pretty clearly that with the ACA, while they don't see the individual market being in the greatest shape, neither do they see a death spiral under the current law.

On the other hand, a week or so back the CBO issued another report speculating on the impact of the ACA being partially repealed...and the prospects were far grimmer:

Then, in mid-March, the GOP finally released their long-awaited "replacement" plan for the ACA, officially titled the American Health Care Act, or the AHCA. When the CBO ran the numbers for how they'd expect things to play out under that scenario, they concluded:

...In CBO and JCT’s assessment, however, the non-group market would probably be stable in most areas under either current law or the legislation.

This is actually rather interesting. I expected them to call out “Death Spiral!” under Trumpcare…but the GOP has been insisting that the indy market is already in a Death Spiral, so this projection negates the “Death Panel!!” talking point from BOTH camps.

Under current law, most subsidized enrollees purchasing health insurance coverage in the non-group market are largely insulated from increases in premiums because their out-of-pocket payments for premiums are based on a percentage of their income; the government pays the difference. The subsidies to purchase coverage combined with the penalties paid by uninsured people stemming from the individual mandate are anticipated to cause sufficient demand for insurance by people with low health care expenditures for the market to be stable.

Under the legislation, in the agencies’ view, key factors bringing about market stability include subsidies to purchase insurance, which would maintain sufficient demand for insurance by people with low health care expenditures, and grants to states from the Patient and State Stability Fund, which would reduce the costs to insurers of people with high health care expenditures. Even though the new tax credits would be structured differently from the current subsidies and would generally be less generous for those receiving subsidies under current law, the other changes would, in the agencies’ view, lower average premiums enough to attract a sufficient number of relatively healthy people to stabilize the market.

In other words: Under the ACA, unsubsidized premiums are projected to keep increasing, of course…but the tax credits would be higher to match for most people. Under Trumpcare, the tax credits would be lower…but some of the gap would be made up by the $100 billion “stability fund”, which amounts to funding for programs like High Risk Pools, Reinsurance and so forth. CBO is basically calling the market stability factor a wash.

OK, so that's one S&P analysis from December, and two from the CBO from January and March. Four months have passed since S&P's original forecast; we're that much closer to the revised 2018 filing deadline for the carriers; the GOP plan has been released, revised, almost voted upon and then yanked at literally the last minute due to it being an utter dumpster fire hated by virtually everyone. Meanwhile, Trump has taken office, issued executive orders commanding the ACA to be sabotaged (as well as boasting of it's imminent death via Twitter and in interviews), and so on. Humana has bailed the individual market entirely. Wellmark and Aetna are dropping out of Iowa. Anthem BCBS is warning they might bail across a whole bunch of states if the GOP/Trump doesn't get their act together. The CSR issue is hanging over everyone's heads.

In contrast to the dire pronouncements from President Trump and other Republicans, the demise of the individual insurance market seems greatly exaggerated, according to a new financial analysis released Friday.

The analysis, by Standard & Poor’s, looked at the performance of many Blue Cross plans in nearly three dozen states since President Barack Obama’s health care law took effect three years ago. It shows the insurers significantly reduced their losses last year, are likely to break even this year and that most could profit — albeit some in the single-digits — in 2018. The insurers cover more than five million people in the individual market.

After years in which many insurers lost money, then lost even more in 2015, “we are seeing the first signs in 2016 that this market could be manageable for most health insurers,” the Standard & Poor’s analysts said. The “market is not in a ‘death spiral,’ ” they said.

OK, so far, so good; they're stressing this eight ways from Sunday: No Death Spiral. However, there's one important caveat...

It is unclear what [Trump] and Congress will do to fundamentally change the insurers’ projections for next year. While Mr. Banerjee predicted insurers would probably raise their prices only moderately next year, he said questions over whether there would be as much government financing could lead to much sharper increases. The companies appear likely to make money in 2018, but “there are external events that could stop that,” he said.

Under the Republican proposal, called the American Health Care Act, several provisions could upend coverage for a variety of customers, Mr. Claxton said. The insurers could be selling to a new group of customers, if lower-income customers lose the subsidies they now receive and cannot afford higher prices.

Mr. Claxton warned that there could be markets that would have no insurance companies offering coverage, particularly in rural areas where there were not many to begin with. “How to fix that was always going to be an issue,” he said.

In other words: If the ACA is implemented and stewarded properly and not messed with, no death spiral. If, however, the ACA is sabotaged, trashed and generally crapped upon, a death spiral is extremely likely.

Of course, there are many who would disagree with this assessment...and as supportive of the law as I may be, and as much as I've hammered home the latter point myself, it's a bit misleading to claim "no death spiral" as an absolute. As I noted just a week ago:

If the total ACA-compliant market remains in the ~18 million range nationally, it sounds like things should be pretty stable. If, however, the off-exchange market continues to drop from the current ~7 million down to 6 million? 5 million? etc), then that would be what I'd term a "semi-spiral"...you could eventually see the entire individual market consist of those below the 400% threshold only (actually, more like 350% or so I'd guess), with those earning between 350% to, say, 600% or so either paying the mandate penalty, hobbling together Short Term and/or Mini-Med policies, or lying about being devout Christians in order to join a Ministry plan.

There's one other important point here, however: In terms of carrier participation levels, whether or not there's an actual "death spiral" might be a moot point.

As I've noted many times before, the assumption is that as long as insurance carriers either a) know they'll make a profit in a given market or b) think they'll make a profit at some point in the near future, they'll participate in that market, right?

However, that's not necessarily the case. As we saw last year in the case of Aetna, profitability itself doesn't necessarily guarantee participation. Aetna pulled out of 11 states, and while they were losing money on the indy market in most of them, there were at least 2 states (Pennsylvania and Florida) where they were making a profit, yet bailed anyway. In fact, in Florida, the only reason they were making a profit in the indy market was because of their exchange business (they were losing money off-exchange).

This is why the situation in states like Oklahoma, Arizona and especially Tennessee [ed: add Iowa] are so troubling--when there's only one or two carriers participating in a given county to begin with, they hold a tremendous amount of power, because they can hold counties or even entire states hostage: Give us everything we demand or we're gonna drop out. In fact, if the individual market is only a tiny part of your total business, you may decide to bail anyway, just to avoid the headaches and confusion of dealing with an administration which has openly declared war on that market anyway. In the case of Humana, they didn't even bother issuing any demands--they decided to get the hell out of dodge regardless of what Trump/the GOP does or doesn't end up doing.